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ECS1500 Assignment 2 Semester 2 2020 Questions and Suggested Answers
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- University Of South Africa (Unisa)
ECS1500 Assignment 2 Semester 2 2020 Questions and Suggested Answers with page references.
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Economics 1500Department of Economics
Assignment 02 for Semester 02 (compulsory)
Unique Number 742423
Learning units 5 to 7
Weight for semester mark 30%
Number of questions 20
Recommended book: Mohr, P & Associates. 2015 (or other editions). Economics for South
African students. Pretoria: Van Schaik.
Please answer this assignment on the prescribed answer sheet on myUnisa or in hard copy.
Feedback on these questions will be provided on myUnisa under Additional Resources after
the final closing date.
For questions 2.1 to 2.5 you need to indicate if the statement is true or false. If the
statement is true, choose [1] and if the statement is false, choose [2].
2.1 When calculating price elasticity of demand the answer will always be negative, because
the demand curve has a downward slope.
[1] True
[2] False
Answer:
Price elasticity of demand are negative numbers indicating that the demand curve is
downward sloping, but are read as absolute values.
Refer to Page 90 of the study guide:
The elasticity measures the percentage change of one variable (e.g. Q) in terms of another
(e.g. P). The price elasticity of demand is always negative. We refer to the price elasticity of
demand by its absolute value (ignore the minus sign).
So, even though the formula says that the price elasticity of demand is negative, we would
say the price elasticity of demand for oil is 0,2 and that for gold 2,6.
, 2.2 When demand is elastic, it means that the quantity demanded will not be sensitive to a
change in the price level.
[1] True
[2] False
Answer:
Refer to page 91 of the study guide:
There are five categories of price elasticity of demand:
• Perfectly inelastic demand: 𝑒𝑝 = 0
• Inelastic demand: 𝑒𝑝 lies between 0 and 1
• Unit elastic demand or unitary elasticity of demand: 𝑒𝑝 = 1
• Elastic demand: 𝑒𝑝 lies between 1 and infinite (∞)
• Perfectly elastic demand: 𝑒𝑝 = ∞
When demand is inelastic it means that the quantity demanded will not change much when
the price level changes. When demand is elastic the quantity demanded will be sensitive to
a change in the price level. The larger the elasticity, the more the quantity demanded will
change due to a certain change in the price level. Unitary elasticity of demand means that
the percentage change in the quantity demanded will be exactly equal to the percentage
change in the price level.
2.3 The change in GDP is the best measure of the change in economic activity in a country.
[1] True
[2] False
Answer:
Refer to page 242 of the prescribed textbook:
Economists use both GDP and GNI (or GNP) when measuring or analysing the state of the
economy. GDP is the best measure of the level of economic activity in the country and of
the potential for creating jobs for the country’s residents. Economic growth is therefore
usually measured by calculating the percentage change in real GDP from one year to the
next. GNI, on the other hand, is a better measure of the income or standard of living of the
citizens of a country. If we want to know how South Africans as a group are faring, we
therefore examine the level and rate of change in real GNI (or GNP).
Refer to page 113 of the study guide:
The most comprehensive macroeconomic measure of total production (and therefore
economic activity) is the gross domestic product (GDP). Even though this measure has a
number of shortcomings, it is still the best measure of economic activity in South Africa.
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